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Modelling South African grain farmers’ preferences to adopt derivative contracts using discrete choice models

  • Ueckermann, E.M.
  • Blignaut, J.N.
  • Gupta, Rangan
  • Raubenheimer, J.

This paper applies a discrete choice model to determine specific characteristics that influence South African grain farmers’ preferences to hedge against uncertainties. This is the first empirical study on South African grain producers’ preferences to adopt derivative contracting and is based on the survey data of Grain South Africa for 2006. With the application of separate binary logit models for each major grain commodity, this paper establishes that different grain farmers are significantly heterogeneous. The results also show that grain farmers’ preferences to adopt derivative contracting are mostly influenced by the farmers’ prediction of daily grain prices and trends, farm size and various geographic characteristics. From a policy perspective it has been indicated that food and income insecurity will be reduced if farmers can adopt derivative contracting at large scale since it will enable the producers to produce staple food on a continuous basis at a relatively profitable level.

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File URL: http://purl.umn.edu/37631
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Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

Volume (Year): 47 (2008)
Issue (Month): 2 (June)
Pages:

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Handle: RePEc:ags:agreko:37631
Contact details of provider: Web page: http://www.aeasa.org.za/
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  1. Ani L. Katchova & Mario J. Miranda, 2004. "Two-Step Econometric Estimation of Farm Characteristics Affecting Marketing Contract Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 88-102.
  2. Xavier Brusset, 2005. "Comparison between minimum purchase, quantity flexibility contracts and spot procurement in a supply chain," Econometrics 0512007, EconWPA.
  3. Nick Vink & Gavin Williams & Johann Kirsten, 2004. "South Africa," Chapters, in: The World's Wine Markets, chapter 12 Edward Elgar.
    • Johann Kirsten & Julian May & Sheryl Hendriks & Charles L. Machethe & Cecelia Punt & Mike Lyne, 2007. "South Africa," Chapters, in: Beyond Food Production, chapter 8 Edward Elgar.
  4. Joost M.E. Pennings & Raymond M. Leuthold, 2000. "The Role of Farmers' Behavioral Attitudes and Heterogeneity in Futures Contracts Usage," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 908-919.
  5. Fraser McLeay & Tony Zwart, 1998. "Factors affecting choice of cash sales versus forward marketing contracts," Agribusiness, John Wiley & Sons, Ltd., vol. 14(4), pages 299-309.
  6. Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
  7. Perry, Janet E. & Mishra, Ashok K., 1999. "Forward Contracting Of Inputs: A Farm-Level Analysis," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(2).
  8. Sartwelle, James D., III & O'Brien, Daniel M. & Tierney, William I., Jr. & Eggers, Tim, 2000. "The Effect Of Personal And Farm Characteristics Upon Grain Marketing Practices," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April.
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